Pension companies will have to reveal details of hidden fees which can eat away up to a third of the money you have saved for your retirement.

Under new rules, all costs and charges associated with a pension will have to be made public following a probe by the Office of Fair Trading, which identified 18 separate transaction costs that fund managers are concealing from customers.

The plans are set to be introduced by
Pensions Minister Steve Webb to face down a rebellion in the House of
Lords this week by former Tory Chancellor Lord Lawson.

Pensions minister Steve Webb (left) will amend the law after a campaign by former Tory Chancellor Lord Lawson to expose the 'massive' charges imposed by pensions firms

Ministers are expected to announce today that fund managers of defined contribution workplace pensions must reveal ‘full details’ of all their costs in future.

They hope the move will create competition in the pensions market and given pension holders greater choice at a time when auto enrolment means people are put in a workplace pension unless they opt out.

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A senior Government source said: ‘Transaction costs are the murkiest end of the pensions business and we are determined to bring them into the full glare of the sun.’

The move is designed to give pension holders greater choice and increase competition. It is especially important as the Government is bringing in rules to enrol workers automatically in retirement schemes unless they opt out.

Lord Lawson had threatened to put down an amendment to the Pensions Bill, going through the House of Lords this week, to expose the hidden charges.

Ministers hope the move will create competition in the pensions market and given pension holders greater choice at a time when auto enrolment means people are put in a workplace pension unless they opt out

Lord Lawson said last month: ‘The costs are massive in this area. In a competitive market, compulsory disclosure will go a very long way towards removing the mischief.’

He pointed out that hidden charges also ramped up costs and can worsen the deficits in some pension funds.

‘It is not merely the pension fund beneficiaries who are being cheated by these excessive costs — and many of these costs are grossly excessive —the more costs are ramped up unnecessarily by the pension funds, the worse that will make the problem of deficits.’

Mr Webb is expected to give the pensions industry a year’s notice before imposing a cap on charges in April next year.

The full details of what will be included in the cap, expected to be about 0.75 per cent of the pension fund, have yet to be disclosed. It is possible the cap will include transaction costs.

A spokesman for the Association of British Insurers said: ‘The pensions industry welcomes the idea of increased transparency on charges and we have been working hard to ensure that there is meaningful disclosure.

‘We know that costs of workplace pensions coming in now are falling, but we are looking at earlier, legacy schemes to see whether anything can be done.’

A Department for Work and Pensions spokesman said: ‘We’re taking action to ensure consumers have access to good quality pension schemes so they have the confidence to plan for their futures.

‘A lack of transparency around the true cost of schemes can prevent savers from having value for money. We will outline our proposals to tackle this issue shortly.’